Opinion
Docket No. 2676-20S
04-28-2021
Robert Marcel Aschenbrenner & Rediat Badeg Aschenbrenner Petitioners v. Commissioner of Internal Revenue Respondent
ORDER
Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is
ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of the pages of the transcript of the proceeding of the above case before Judge L. Paige Marvel at Washington, DC, on April 1, 2021, containing her oral findings of fact and opinion.
In accordance with the oral findings of fact and opinion, the decision will be entered for respondent.
(Signed) L. Paige Marvel
Judge Bench Opinion by Judge L. Paige Marvel April 1, 2021
THE COURT: THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE.
This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986 as amended and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references in this bench opinion are to the Internal Revenue Code of 1986 as amended and in effect for the year at issue. This case was heard pursuant to section 7463 of the Internal Revenue Code of 1986 as amended, and Rules 170 through 174 of the Tax Court Rules of Practice and Procedure. Pursuant to section 7463(b), the decision to be entered is not reviewable by any other court, and this opinion shall not be treated as precedent for any other case.
Petitioner-husband, Robert Aschenbrenner, appeared on behalf of petitioners. Isaac Brooks appeared on behalf of respondent. The only issue for decision is whether respondent correctly determined that petitioners' 2018 tax liability should be increased by $7,482 of excess advance premium tax credits (APTC) that were applied against their monthly health insurance premiums in 2018.
Findings of Fact
Some of the facts have been stipulated. The stipulations of fact and facts drawn from stipulated documents are incorporated herein by this reference. Petitioners resided in Maryland when they timely petitioned the Court.
Starting at least as early as 2017, petitioners purchased health insurance from Kaiser Permanente. At that time, petitioner-husband was not employed and petitioners' household income entitled them to an APTC subsidizing their health insurance premiums. In 2018, petitioner-husband found employment. Although petitioners could have secured less expensive health insurance through one of petitioners' employers, they elected not to do so. Rather, they continued with their plan at Kaiser Permanente. They also continued to receive an APTC relating to their health insurance premiums throughout tax year 2018. In 2018, petitioners' APTC totaled $7,482, which was paid to their insurer and for which petitioners received an equivalent reduction in health insurance premiums.
For tax year 2018, petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, reporting an adjusted gross income of $94,711. Petitioners claimed no dependents and, accordingly, had a family size of 2. On November 18, 2019, respondent issued to petitioners a notice of deficiency determining a deficiency of $14,964 and a penalty under section 6662(a) of $2,992.80. On November 29, 2019, respondent issued to petitioners a Letter 555 that reduced the deficiency determined in the notice to $7,482 and eliminated the penalty determined in the notice. On February 10, 2020, petitioners timely petitioned this Court for redetermination of the deficiency.
Discussion
As part of what is commonly referred to as the Affordable Care Act (ACA), Congress sought to increase the number of Americans with health insurance coverage. To this end, the ACA provided for various tax credits. Section 36B provides a premium assistance tax credit (PTC) to subsidize qualified taxpayers' health insurance premiums. See sec. 1.36B-2(a), Income Tax Regs. With exceptions, the PTC is available to taxpayers whose income in the tax year was between 100% and 400% of the Federal poverty line. Sec. 36B(c)(1)(A), (d)(3)(B); see McGuire v. Commissioner, 149 T.C. 254, 258-263 (2017). In 2018, for a 2-person household, the Federal poverty line was $16,460 and 400% of that is $65,840. 83 Fed. Reg. 2642, 2643 (Jan. 18, 2018).
Tax credits are generally claimed upon the filing of a tax return. To ensure that qualified taxpayers do not have to wait until the filing of a tax return to realize the PTC's benefits, however, the ACA provides for advance payment of the PTC if taxpayers qualify under an advance eligibility determination. McGuire v. Commissioner, 149 T.C. at 260-261. These advances are paid directly to the insurer in monthly payments and the insurer, in turn, reduces the premium charged to the insured taxpayers by the amount of the APTC received. Id.
While the APTC helps to ease the timing burden by spreading the payments throughout the tax year, it also creates a potential trap for taxpayers whose household income increases year over year. Specifically, if taxpayers who qualified for a PTC in a prior year increase their household income to more than 400% of the Federal poverty line in a following year, they may continue to receive an APTC to which they are not entitled in that year. To recover the erroneous payments, the law requires such taxpayers to reconcile the amount of APTC they received with their actual eligible credit amount when they file their income tax return. Sec. 36B(f). If taxpayers receive more APTC than they are due, they owe the excess credit back to the Government and must repay it as an increase in tax. Sec. 36B(f)(2).
Petitioners erroneously received the benefit of an APTC paid directly to their insurer in 2018. Petitioners' APTC continued from 2017, but petitioners did not account for their change in household income once petitioner-husband became employed. Once they received an APTC in 2018, the law imposed a duty upon petitioners to reconcile the APTC amount received by their insurer with their actual eligibility for the PTC. And in 2018, petitioners' household income had increased to more than 400% of the Federal poverty line, i.e., they earned more than $65,840. Accordingly, they were not entitled to claim any PTC and must repay the entire amount of APTC they received as an increase in tax for tax year 2018.
We are sympathetic to the hardship that this imposes on petitioners. They are neither the first nor, we suspect, the last taxpayers to find themselves unexpectedly ensnared by the APTC. Unfortunately, we are not a court of equity, and we cannot ignore the law to achieve a fair or equitable end. The law in this case is clear; petitioners received an APTC to which they ultimately were not entitled. Consequently, we are bound to sustain the proposed increase in tax determined in the notice of deficiency, dated November 18, 2019, and revised on November 29, 2019.
THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE.
(Whereupon, at 11:59 a.m., the above-entitled matter was concluded.)
CERTIFICATE OF TRANSCRIBER AND PROOFREADER
We, the undersigned, do hereby certify that the foregoing pages, numbers 1 through 9 inclusive, are the true, accurate and complete transcript prepared from the verbal recording made by electronic recording by Adrian Morris on April 1, 2021 before the United States Tax Court at its remote session in Washington, DC, in accordance with the applicable provisions of the current verbatim reporting contract of the Court and have verified the accuracy of the transcript by comparing the typewritten transcript against the verbal recording.
/s/_________
Amy Parnell, CDLT-179
Transcriber
__________
4/7/21
Date
/s/_________
Traci Fine, CDLT-169
Proofreader
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4/7/21
Date